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Business structure overview

There are different ways to structure your business — whether you’re contracting, self-employed, in partnership or run a company. Here’s where you’ll find information about each option, including the pros and cons, to help you decide which structure best suits you or your business.

Before you start

There are different ways to structure your business, each with different legal and financial obligations. Most businesses in New Zealand are sole traders, companies, or partnerships.

While there are no great barriers in New Zealand to becoming a sole trader, starting a partnership or a company, it still pays to think about why you’re doing it and which choice will best suit you. The structure you choose can impact your ability to grow or sell the business, so it’s important to get it right.

Ask yourself:

Will I look for investors?

Is this a business I will work to grow?

Will this be a business I want to sell one day?

Talk to people who have chosen the structure you’re thinking about and think about getting an advisor, eg a lawyer or accountant who specialises in advising people in the industry you want to work in.

Use our Choose Business Structure tool to help you make the best choice.

Sole traders

Sole traders are people who start in business or contracting on their own, without registering as a company. Many small business owners, contractors and self-employed people begin as sole traders. It’s the cheapest and easiest option, and may appeal to you if you want to make a living by following your passion, or to work as a contractor.

Pros and cons

Upsides include:

It’s easy to set up — you can get up and running quickly

Start-up costs are low — there are no legal or registration fees

You control the business and get all the profits

You can offset losses against other income.

Downsides include:

You’re liable for all debts — this may put your personal assets at risk

It’s harder to grow a sole trader business

Getting loans or investment can be more challenging

It’s harder to sell as a working business.

If you find you want to change your business structure, eg because it’s hard to attract investment as a sole trader, you can register your business as a company.

Tax

As a sole trader, you pay tax on all the income you earn from your work. You can claim work expenses to reduce your income tax.

You’re responsible for all your business debts, including tax and ACC levies, but you also keep control of the business and its profits. At the end of each financial year you must complete a tax return and submit it to Inland Revenue.

Staff

Tax

A company pays tax on its profits — the income left over after taking away expenses. If the company distributes profit to its shareholders, shareholders will pay income tax on the dividend but may also get tax credits to help them meet that obligation.

If a company’s expenses are more than its income, it makes a loss and may not have to pay tax.

Tax

A partnership doesn’t pay income tax as a business. It distributes all the income between the partners who then pay income tax on their share.

Each partner is responsible for their own debts. But you can also be responsible for your partners’ business debts, too. At the end of each financial year the partnership must complete a tax return and each partner needs to complete an individual tax return. These are then submitted to Inland Revenue.